Derogatory Item on Credit Report After Chapter 7

Federal law (US Code Title 15, §1681c) controls the behavior of credit reporting agencies. This law is known as the Fair Credit Reporting Act (FCRA). Under FCRA §605 (a) and (b), an account in collection will appear on a consumer's credit report for 7½ years. The clock starts approximately 180 days after the date of first delinquency on the account. To learn when an account will be removed by the credit reporting agencies (TransUnion, Equifax, and Experian and others), add 7½ years to the date of first delinquency. Subsequent activity, such as resolving the debt, is irrelevant to the seven-year rule. However, if the debt is a tax lien, that can appear for seven years from the date of payment. A bankruptcy will appear for ten years from the date of the final order. Delinquent federal student loans can be reported indefinitely, i.e., for as long as they are delinquent.

Generally speaking, any account included in a bankruptcy filing will appear on a credit report as “included in bankruptcy,” and reflect a $0 balance. It should not appear as open and past due, though previous delinquencies may remain even after a bankruptcy filing. To correct any problems you are experiencing with your credit profile, you should first pull a copy of your credit report from each of the three major credit bureaus (Equifax, TransUnion, and Experian), then carefully review the reports to identify which discharged accounts are being reported inaccurately. You can access free copies of your credit reports at AnnualCreditReport.com, a Web site sponsored by the credit bureaus in compliance with federal law allowing all consumers to obtain a free copy of each bureau’s credit report once every 12 months. Next, you should dispute the incorrect listings with the credit bureaus. See the Federal Trade Commission document FTC Facts for Consumers: How to Dispute Credit Report Errors for more information.

When disputing an account discharged in bankruptcy, include a copy of your credit report showing the inaccurate listing, as well as a copy of your creditor schedules from your bankruptcy filing and the order of discharge from the bankruptcy court. These documents will show that the same account appearing on your report as delinquent was actually discharged in your bankruptcy filing. Once the credit bureaus receive your dispute letter, they should forward the documents to the creditors in question so the creditors can either challenge the disputes or correct the inaccurate listings.

If the debts were discharged in bankruptcy, there is no reason that the accounts should not be updated to reflect an accurate status. Having these accounts correctly listed on a credit report should reduce their negative impact on a credit score, helping the consumer rebuild their credit after the bankruptcy filing. Although accounts being discharged in bankruptcy is not good for a credit score, having both a bankruptcy and delinquent balances on a credit report is usually worse.

Credit reports are notoriously inaccurate, so it is important to review your credit profile regularly to verify all of the information being reported by creditors is accurate. Carefully monitoring your credit history and disputing inaccurate items can significantly increase your credit score, which could save you thousands of dollars in interest on a mortgage, auto loans, and other forms of credit. If you would like to learn more about credit scoring and credit reports, I encourage you to visit the credit solutions section of Bills.com.

I hope this information helps you Find. Learn. Save.

Best,

Bill

Bills.com